Fixing AMP: A Post-Brown Analysis

AMPs on the ground
AMPs on the ground
Lookin’ like a fool with your AMPs on the ground…

Average Manufacturer Price (AMP) may not be on the ground yet, but it certainly won’t be on the floor of the House or Senate anytime soon. Senator-elect Scott Brown’s surprise win has cast serious doubt on the current health care reform effort.

So, what’s next? I think the pharmacy associations will keep on fighting because they have invested too much political capital on the AMP issue. So, an AMP fix will move forward somehow, with the pharmacy lobby successfully redefining AMP, increasing the mark-up, and perhaps also blocking publication of AMP data.

Nonetheless, marketplace changes and state Medicaid programs actions have made the fix much less important to the pharmacy industry than many people believe, as a just-released OIG study confirms. The latest evidence even suggests that AMP-based FULs are comparable to Part D MAC lists, suggesting overly generous Medicaid reimbursements remain. Facts sure are stubborn things, aren't they?

PROSPECTS FOR AN AMP FIX

Both the House and Senate bills included “fixes” to correct (translation: increase) the AMP-based Medicaid Federal Upper Limits (FUL). See Healthcare Reform Options for AMP.

To his credit, President Obama acknowledged reality last night by backing a piecemeal approach: “I would advise that we try to move quickly to coalesce around those elements in the package that people agree on.” FWIW, I think you should read the entire transcript of Obama’s interview with George Stephanopoulos.

So, is adjusting the FUL something that people agree on?

I think so. The NCPA has been pushing the issue incessantly and no one is publicly arguing the other side of the issue (cost control?) except the wonks at CMS. I am impressed by NCPA’s tenacity on this subject and recommend you read their blog post from last week: Getting that Medicaid AMP Fix Right in Health Reform.

TOO LOW OR STILL TOO HIGH?

A little-noticed GAO analysis released last month added fuel to the fire, but the ultimate impact of AMP-based FULs remains ambiguous based on my reading of the document. Read the GAO analysis and CMS rebuttal.

• The GAO concluded that AMP-based FULs would have been lower than average retail pharmacy acquisition costs for most of the drugs in their sample and in the national aggregate.
  
  
• However, CMS was sharply critical of the GAO’s methodology, pointing out (correctly, IMHO) that the GAO’s data overestimates acquisition cost by excluding certain discounts and rebates. CMS also highlighted multiple other methodological flaws.

I’m not really sure what’s going on between these two agencies, but the GAO’s results seem highly suspect to me.

By comparison, a more reliable OIG study from August 2009 (with better data) draws much different conclusions:

• FUL amounts calculated under the current pre-DRA methodology were more than four times higher than average pharmacy acquisition costs and three times higher than Medicare Part D payments. Ka-ching!
  
  
• In the aggregate, AMP-based FUL amounts were only 2 percent below average Part D payment amounts. Keep in mind these amounts are BEFORE the redefinition of AMP contemplated in the current reform bills and EXCLUDE the higher-than-private-payer Medicaid dispensing fees.

I somehow doubt that this just-released OIG study will factor into any lobbying efforts. Only wonks like me will read it, even though the OIG study tells us much more about what's really going on with pharmacy profits.

DOES AMP REALLY MATTER?

Over the past few years, I’ve tried in vain to point out the more outrageous claims made about AMP, such as the laughable statement “11,105 pharmacies will close.” (No, not really.)

Yet the world keeps on evolving since the Deficit Reduction Act of 2005.

46 State Medicaid programs now use Maximum Allowable Cost (MAC) lists, up from only 26 States in 1999. Many of these MACs are far below current FULs precisely for the reasons pointed out by the OIG above. (See Exhibit 14 from my pharmacy industry economic report for evidence from Florida.)

The Retail Pharmacy Generic Price War (tm) kicked off by Wal-Mart (NYSE:WMT) is also removing excess generic profit. The OIG study cited above found that the aggregate AMP-based FUL amounts plus a dispensing fee exceeded retail prices available through $4.00 discount generic programs. OIG estimates that Medicaid would have saved $350 million in 2007 if beneficiaries had filled scripts at a pharmacy with a discount generic program. Thank you, Wal-Mart!

SLAYING THE DRAGON

But none of these "facts" matter, do they? The NCPA and NACDS can’t back down, having worked their membership into a froth over AMP because “the DRA is a dragon that has yet to be slain” (per Knight in Shining Armor Steve Anderson of NACDS)

So even as the current health care bills careen off the rails, I still expect some sort of AMP fix to emerge from the rubble—whether it is really needed or not.

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Confused by the opening of this post? Then you have been living in a non-viral pop culture bubble, my friend!

Google “Pants on the Ground” (39.6 million hits?!?), watch Brett Favre sing, or just ask anyone under the age of 18 to explain what the heck is going on. I was amazed to learn that everyone in my daughter’s seventh grade class already knows the words to this ditty.

Strange days, indeed.

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